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Who Needs Venture Capital? Pebble Smart Watch Raises Over $5 Million on Kickstarter

Kickstarter is not just for artists and filmmakers anymore. With 29 days to go, the Pebble SmartWatch for iOS and Android has raised over $5 million. Could it hit $10 million? If you look at the curve it still seems to be accelerating, so sure, why not?

Pebble’s founder, Eric Migicovsky, came to Kickstarter because Venture Capitalists considered investing in a hardware startup too risky. This for a guy who went through the finishing school of Y Combinator with flying colors. This for a guy who started bringing in revenue while still in the incubator. This from a guy who raised angel money from Paul Buchheit, one of the partners at Y Combinator, and Tim Draper of Silicon Valley VC firm Draper Fisher Jurvetson. This from a guy who already built a similar project with a less catchy name for a moribund market (the InPulse watch for Blackberry)

If this guy can’t raise capital, the rest of us are definitely chopped liver. Mark Milian at Bloomberg talked to Migicovsky about his switch to crowdfunding, and why he’s more adept at pitching to consumers than to venture capitalists, “With VCs, they worry about models and size of market and stuff like that,” he said. “With consumers, one of the things I love about the videos, we just showed how you’re going to use it.”

Ryan Kim at GigaOM, says that Migicovsky’s “more interested in how the Kickstarter campaign is helping create an instant ecosystem around Pebble’s app platform, giving it the kind of scale that is very hard to conjure up so quickly in the software world.” This is a kind of viral product evolution that’s also impossible within the strictures of venture money. Pebble’s platform is expanding because of the additional funding, but nobody’s equity is being diluted.

It’s a virtuous circle. The more people have the watches, the bigger the ecosystem there is to develop apps for. The more apps there are for the watches, the more useful they become (within reason, of course). The more useful the watches are, the more people will buy them, and so on. “When this many people get a product on day 1, that’s a huge market for apps,” Migicovsky tells GigaOM. “That’s boosted us into a position of a viable app platform.”

And because he is accessing an early adopter market through Kickstarter, some of his first customers are also going to be his developers and distributors.“I didn’t realize this would happen but it’s totally obvious to me now that Kickstarter is great for building a community. The backers will now form the community that builds the apps or requests apps to be built,” contines Migicovsky.

Roman Reyhani, on his Reyhani Law blog, asked Migicovsky if he could share the number of units sold so far or an indication of developer interest. “At last check we’ve sold about 37,000 now,” Migicovsky replied. ”In terms of developers, we’ve had 32,000 hits on the developer blog. Which is great because a lot of developers means a lot of new apps, and I think developers will get really psyched when they see the total tally we have sold on Kickstarter. A lot of other platforms never really take off, but we’re fortunate that ours has taken off before it’s even out the door.” Gotta love preselling!

So in a move born out of an insider’s frustration with the dearth of funding options, Migicovsky has gotten way more than he bargained for—and way more than he could ever have asked for. Startup financing will never be the same.

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Interesting model (the idea of using Kickstarter – I think those watches look silly). I can’t help but feel that the funders are getting a raw deal – it’s not even like a traditional investment relationship in which someone(s) handing over $5million might expect some sort of ownership stake in a company and an entitlement to rewards from the future successes of the product.

In this situation, the investors are not only the driving cause of the success (being as they’re all basically putting in a pre-order to buy the product and I doubt the company is setting up the rewards system to operate at a loss), they’re guaranteeing that the profits sit fully (or as fully as possible) within the company. Basically they’ve just funded a small group of individuals into riches with no reward for themselves outside of a product they could have ostensibly bought at a slightly higher price when it went into mass production.

Maybe I’m jaded. It’s a great way for consumers to self-direct what they actually want to see in the market, which is nice. If they really want these watches and the lack of investment capital was going to make the alternative that they never existed… I suppose this is better.

I just think I was more sentimental towards Kickstarter when it was moreso a vehicle to helping those artists/filmmakers you mention – people who were trying to put together the funding to create something, perhaps without an expectation that it would earn them a significant amount. I knew someone vaguely who used it to fund the creation of a comic book series, for which I believe they made absolutely no money out of the arrangement. They just had no other way to create their product at the time. This just feels… cynical, for some reason.

The Terms of Use at Kickstarter are clear: “The Service is available only to individuals who are at least 18 years old. You represent and warrant that if you are an individual, you are at least 18 years old and of legal age to form a binding contract, and that all registration information you submit is accurate and truthful.”

I’m not sure how a group of entrepreneurs can qualify for these Terms of Use. There may be legal ramifications of this to come…

I have written to Kickstarter to clarify this, as our company would love to get some investment funds through a Kickstarter project also. Yet as the Terms of Use currently stands, I don’t see how we could apply to Kickstarter.